The whole world is watching as the US and China confront each other on the issues of trade and tariffs and companies shifting their manufacturing base to Southeast Asia. In March 2018, the United States began making moves to slow Chinese imports by placing tariffs on certain goods made in China and other countries.
Then, on July 6, 2018, the US
began to collect a 25% tariff on 818 Chinese
products with a value of US $34 billion, the first tariffs
specific to China. The second round of tariffs, which would place a 25% tariff
on 284 Chinese products valued at US $16 billion was already under
Since that time, the two
countries have gone back-and-forth between raising tariffs and negotiating.
This uncertainty has led to many manufacturers moving their operations either
entirely or partially out of China.
However, tariffs and the
looming trade war are not the only cause of this migration. Many businesses
were already looking for alternatives, as the cost of doing business in China
has increased. Chinese minimum wages have gone up, and China has begun to
address its many environmental concerns contributing significantly to the
rising cost of doing business in China.
Many companies have already
made their move out of China. Internal data from QIMA shows demands from US
companies for inspections and audits at Chinese facilities fell by 12.7% in 2019 compared to 2018.
Countries in Southeast Asia had
increased requests for inspections; Vietnam, for instance, had a 21% increase
the same timeframe. Overall, South Asia had a 34% increase in the demand for
inspections and audits in the first half of 2019
The midyear survey performed by QIMA shows that 80% of
the US and 67% of EU respondents are already sourcing via different countries,
or planning to do so soon.
are the options?
There are many choices to make
when relocating your business from China. Some companies will leave China
entirely, moving their complete operation, including raw materials and
inventory. Other companies may find value in moving only a portion of their
process to avoid tariffs.
Whichever the case, there are
still more decisions to make in regards to which is the best solution for your
Stability, a friendly business environment, sufficient labor force, infrastructure, and logistical support are some of the critical considerations when anticipating such a move. Following that decision, facilities may need to be built, and workers will need to be hired and trained. Each country has different requirements and incentives.
Restarting a business in a new
country can be quite time-consuming and costly.
Moving your operations to a new country means there will be new rules. Not only are laws and regulations different, but legal systems, language, and culture will also be different as well. Many brand owners and manufacturers have considered shifting their manufacturing lines to Southeast Asia. However, Southeast Asia is quite diverse. For instance, in Southeast Asia, each country has its language and culture.
Malaysia is a multicultural nation where many languages, such as English, Malay, and Mandarin, are spoken. The Malaysian legal system is based on British common law. In 2018 Malaysian exports reached an all-time high of about US $250 billion.
Vietnam is a more homogenous than a country like Malaysia. The legal system there is based on French civil law along with their communist ideology. According to Trading Economics, Vietnam has doubled its exports in recent years due primarily to the low cost of doing business there, including wages. In 2018, export revenues were up by 13.8% and estimated to be at US $244.72 billion.
Another issue that may arise when working with new suppliers and new workforces is quality. This questionable quality is a real concern. Many companies have experienced these problems when working with a new supplier. You will want to find a company with a stable and well-trained workforce, which will be key to your success when relocating to a new country and working with new suppliers.
As mentioned earlier, it takes some time to negotiate and set up a new enterprise in a different country. As more and more businesses move their facilities out of China, it may take even longer for you to line up all the resources you will need.
Planning always pays big dividends, and this is no exception.
Shifting your manufacturing to Southeast Asia
Waiting for the right time can
put your profits and even your company in peril. Don’t get caught with
decreasing orders due to tariffs. Stay on top of the situation; find a
reputable company which is already a part of the global supply chain.
One such company is Ge-Shen, incorporated in 2003, with headquarters in the Malaysian capital city of Kuala Lumpur with factories in 3 locations: Penang, Johor and Hanoi – a Southeast Asian contract manufacturer.
Ge-Shen has a workforce of over 1500 well-trained employees. With four factories with over 550,000 sqft of manufacturing space. Ge-Shen has the resources to make your transition seamless, swift, and professional.
With capabilities such as injection molding, metal stamping, surface finishing, assembly and more, Ge-Shen provides services to a wide range of industries including consumer electronics, automotive, home appliances, and medical devices, to name just a few.
Ge-Shen is continually adding to its capabilities and innovating to keep pace with new technologies and design as the marketplace evolves.
The philosophy at Ge-Shen is one of integrity, transparency, ownership, respect, and speed; and to provide their clients with a “hassle free uncompromised experience.” Ge-shen accepts transfer of molds from various locations which can help with the quick shifting of your manufacturing lines to our Southeast Asia base.
Contact us NOW to discuss HOW we can help YOU, our customers.